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Shale Games

North Louisiana's Haynesville Shale continues to hog energy investments, often at the expense of coastal properties

If you believe the economic analysis and corporate hype, the
Haynesville Shale will become the nation's top producing natural gas
field within the next six years. The money involved in such a feat is
astounding: Drilling one well in the shale will cost more than $6
million, and already there are about 17 companies lined up to play.
That the area covers four parishes — Caddo, Bossier, DeSoto and
Red River — is just as impressive as what the shale actually is:
a layer of sedimentary rock located 10,000 feet or more below the
surface of the earth.

Energy companies working in the area for several years
have found indications of a potentially large supply of gas trapped
within some portions of the shale. In simpler terms, it's an untapped
gold mine. The action, however, is drying up investments in south
Louisiana. Petroleum landmen and energy companies can only put their
money in so many places, especially during dour economic times.

The numbers don't lie. According to the Department of
Natural Resources (DNR), 97 rigs have been erected in Louisiana this
year, of which 77 are in north Louisiana and 66 are in the Haynesville
Shale. During the same period in 2008, there were 129 rigs statewide,
with 72 in north Louisiana and 21 in the shale play.

DNR Secretary Scott Angelle admits development and
exploration in south Louisiana is "anemic," but adds it's hard to stand
up to and compete against a historic opportunity that's just a few
hours away. "This is a game changer," Angelle says. "The Haynesville
Shale represents the best geographic area in the U.S. to be drilled,
and people want to get involved."

Meanwhile, the area south of I-10 is quickly becoming
the stepchild of energy investments. If more evidence is needed, look
no further than the state Mineral Board's monthly oil and gas lease
sales. The August sale produced a small-but-noticeable bump for south
Louisiana, where eight leases were awarded in areas that hadn't seen
interest in months. The one lease awarded in offshore waters in August
in Terrebonne Parish, following another single sale in July, highlights
the lull, especially when you consider they were the first sales on
record since January.

If the August sale revealed any consistency, it can be
found in the fact that action is still hot in north Louisiana. Twenty
of the 23 north Louisiana leases were sold in Caddo, DeSoto and Red
River parishes in the area of the Haynesville Shale natural gas
formation. Of that 20, 16 were sold in Caddo Parish, the hub of related
activity. Lease values also remained strong in the area, with the 20
Haynesville Shale area leases averaging more than $6,500 an acre
— up from nearly $4,800 an acre in July.

The state commissioned Baton Rouge economist Dr. Loren
Scott to estimate the statewide economic impact of the shale play. His
findings suggest it will become every bit the "game changer" that
Angelle predicts — to the point of possibly benefiting south
Louisiana in the long run. Last year alone, the play generated $2.4
billion in new business sales, roughly $3.9 billion in additional
household earnings and more than 32,000 new jobs. "As a reference
point, this is slightly larger than total employment in all of
Louisiana's banks and credit unions," Scott explains in the study.

Companies are taking note. Just a few weeks ago,
Chesapeake Energy Corp. opened a headquarters near the shale and
promised to be a "good partner" for the state. It already has
distributed more than $30 million in royalty payments and is the
largest landholder in the region. Gov. Bobby Jindal attended
Chesapeake's grand opening and commented on what the move means for
Louisiana — north and south. "With an estimated 6.5 billion cubic
feet of recoverable natural gas per well in Haynesville, Chesapeake is
certain to remain in Louisiana for some time and they will help ensure
that Louisiana remains at the forefront of the nation's energy
industry," Jindal says.

In related news, Dallas-based Regency Energy Partners
unveiled new plans to build a $44 million pipeline extension to the
shale area. When it comes to technological advances, the shale is once
again leaving south Louisiana behind. For starters, there's the leap
into urban drilling. Officials were forced into this because of the
proximity of production operations in the Haynesville Shale zone and
nearby populated areas.

From advances in operations to the amount of
investments, there's no doubt north Louisiana is outshining southern
parishes these days. But to hear Angelle explain it, the shale may end
up carrying the entire state into a new economic era. "You can connect
the dots in a bunch of different ways, but it's important not to
underestimate the importance of the Haynesville Shale statewide,"
Angelle says. "It's brought Louisiana another area that can be explored
and developed."